Gold chart staging areas

If you take a look at the monthly gold chart you can see what I would call staging areas where conditions very similar to what we are experiencing today provided buying opportunities in the past. The first big opportunity came way back in the late 1990s, early 2000s when Britain sold off part of its reserves and drove the price back below $300. The second occurred in the 2006-2007 time period (just before the credit crisis) at roughly $550-$700 per ounce. The third came in 2008-2009 at the $800-$950 per ounce range. In each instance, the buying window lasted 12 to 18 months.

Now a similar chart pattern has developed at $1550 to $1700 range and we have been in it for about 18 months. Time will tell whether or not we are now sitting on a new launch pad, although yesterday’s action serves as a reminder that there is still a large section of the gold market that considers corrections buying opportunities. In each instance, I should add, a chorus of naysayers called the rangebound price behavior a “bull market top.” At the same time, in each case, the price of gold roughly doubled during the ensuing years.

Buyer behavior was similar during each period with well-heeled investors adding steadily to their holdings throughout the period. Of late, we have had quite a bit of interest both in terms of web traffic — a huge jump last week — and a good deal of buying both from our regular clientele and new entrants. Corrections in a secular bull market do not necessarily put an end to it. In fact, the cleansing process can actually strengthen the market for the longer haul by ridding the market of weak-handed speculators. And, yes, those weak hands can include a hedge fund or two.

Here’s the chart. It is presented for informational purposes and not meant to be investment advice or a predictor of things to come. If you trade on this information, it is at your own risk. Keep in mind that USAGOLD believes gold’s principle role to be portfolio insurance, not a speculation. We view the staging areas as time periods in the past that amounted to extended buying opportunities for those interested in acquiring gold for safe-haven purposes.

Speaking of the insurance/speculation syndrome, some of the very same institutions that were predicting a gold price between $1800 and $2200 at the end of 2012 are now predicting the price is going to crater. These fickle, trendy analysts tend to go with the flow and few of them fully acknowledge the real reasons why investors buy gold, or even central banks for that matter. They forever see it as a price play, like a common stock or aluminum futures. Thus they adjust their target price up or down hoping to create some trades amongst their clientele.

What they fail to realize is that the real market for gold is as portfolio insurance – that it isn’t an investment at all but a form of savings and money. When you look at gold this way, the constant predictions and adjustments by the big institutions whenever the market takes a jolt (or jumps) seem a bit silly. We believe the best approach for the bulk of our clientele is to acquire gold and silver steadily over time and not pay too much attention to the speculative analysis that dominates the mainstream media. In the end, none of the stressed conditions that have taken gold from $250 per ounce to $1600 per ounce have been addressed. In fact, the situation seems to have worsened. As long as that is the case, the need for gold as a long-term hedge remains in place for individuals, institutions and central banks alike.

By the way, and this will be my final note today, it was interesting to learn that during the most recent fiscal year (September) for the Central Bank Gold Agreement (CBGA), the central banks sold a grand total of 4 tonnes of gold out of a 400 tonne allotment. In the real world of gold mobilizations, central banks bought 534.6 tonnes of gold – the highest level of purchases in half a century. (And that’s what we know about – China tends to keep its activity in the gold market secret) Central bank buyers are unlikely to see the recent sell-off as a deterrent. Like their counterparts in the private sector, they are more likely to see it as a buying opportunity.